Optimal Reciprocal Dumping in a Managed Trade Regime

Abstract The purpose of this article is to examine the strategic relationship between trade policy in a managed protection regime and commercial exchange at prices below normal value. It presents a three-stage model of imperfect competition that incorporates the possibility for the government author...

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Bibliographic Details
Published in:Revista mexicana de economía y finanzas = Mexican journal of economics and finance : REMEF 2019-04, Vol.14 (2), p.189-202
Main Author: Gallegos David, Alberto
Format: Article
Language:English
Subjects:
Business, Finance
Comercio administrado
Competencia Cournot
Cournot competition
Dumping Recíproco
Economics
F12
Managed trade
Reciprocal Dumping
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Summary:Abstract The purpose of this article is to examine the strategic relationship between trade policy in a managed protection regime and commercial exchange at prices below normal value. It presents a three-stage model of imperfect competition that incorporates the possibility for the government authority to influence the production decisions of companies through a credible threat, by means of a specific tariff. This methodology-in a context of segmented markets, Cournot conjectures, and the application of an optimal tariff-generates a mechanism of incentives (which are not sufficient from a social welfare perspective) for domestic and foreign companies to practice reciprocal dumping. A general conclusion is that a free trade policy would be counterproductive, since it would eliminate the incentives that domestic and foreign companies would have to carry out the commercial exchange that would diminish the loss of welfare associated with the existence of monopolies in both markets.
ISSN:1665-5346
2448-6795
2448-6795
DOI:10.21919/remef.v14i2.309